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Explaining ICOs so you can actually understand it

Have you ever heard someone talking about ICOs and wondering what does it mean? ICO is a 21st-century buzzword that is well known to millennial investors and is an abbreviation for Initial Coin Offering (ICO). It is an unregulated fundraising tool used by crypto world startups to crowdfund their blockchain ventures by issuing digital currency tokens. Most investors from the stock market are already familiar with Initial Public Offering (IPOs). Although similar in concept, ICOs are very different from IPOs. Unlike IPOs, ICOs do not allocate any company stocks but issue tokens to passionate investors depending on their investment amount. Compared to an IPO, an ICO campaign is much more efficient as startup companies do not need to go through rigorous and extensive capital-raising processes with venture capitalists and banks, which usually involve a lot of bureaucracy and paperwork.

ICO vs Crowdfunding

If you are familiar with crowdfunding then ICOs will make much more sense to you. Before launching ICO, a startup company usually comes up with a whitepaper where they detail the company idea, project roadmap, and the intent for token distribution. To win the confidence of its investors, the white paper also details why the token is needed for the project and Token Distribution Plan (TDP). TDP usually details how many tokens will be allocated to the company, founders, developers, investors, marketing or to cover any other costs. TDP also provides good insight into whether founders have long term plan for the project or are just interested in a quick buck.

ICO Summary (Source - Premast)
ICO Summary (Source – Premast)

Some ICO companies also offer presale tokens to institutional and high-worth investors at a much-discounted price, before ICO is opened for the general public sale. Generally, tokens offered during public sale event are much cheaper and offered at discounted prices compared to buying tokens once it’s listed on an exchange. Maximum token discounts (as high as 50%) are offered at the beginning of the ICO launch, which decreases as time progresses.

Read also: ICO and Pre-ICO – how to benefit?

Passionate supporters and investors buy new ICO tokens in the hope that if the company idea is implemented and successful, the token value will multiply and provide a handsome return of investment. Finally, when the funding goal for a project is met and the project takes off these tokens become functional units of cryptocurrency.

ICOs Bounty Program

Some ICO companies also offer bounties or rewards to passionate supporters who help in marketing the company’s ICO. Bounties usually include receiving tokens for free. ICO marketing usually involves writing reviews, sharing news, updates, and articles on social media, mass communication, and completing actions as instructed by the company in Bounty Program’s terms and conditions.

Brief History of ICOs

Back in 2013, Mastercoin became the first ICO to be ever held and raised around 5000 Bitcoins, worth $500,000 at the time. When ICOs initially started, the main form of investment fund transfer was fiat money or Bitcoin. For example, the Ethereum token was bought by passionate supporters by sending their Bitcoin to the Ethereum organization address. But nowadays investors have more options to choose from as ICO companies are accepting Bitcoin, Ethereum, or fiat money in the form of investment money.

Where Does Blockchain Fit In The Whole Puzzle

All digital cryptocurrencies use blockchain technology to function. Some crypto companies implement their own blockchain protocols while most use existing blockchain platforms for the ease and speed of launching their cryptocurrency. For example, 77.74% of ICOs cryptocurrencies are utilizing the Ethereum blockchain platform, offering ERC20 based tokens as their cryptocurrencies. Which blockchain platform is best for an ICO project is a million-dollar question and usually depends on the use case, business model, network speed, transaction speed, and security requirements of the project.

Regulation and Legal Status

ICOs are not regulated by the Securities & Exchange Commission (SEC) in the US or by any other government organization in other countries. Lately, some countries have shown interest to formulate plans to regulate ICOs. Regulation of ICOs might be bad for startup ventures as it will make crowdfunding difficult, at the same time regulations will also help to prevent ICO scams and in turn, save investors from fraud. In 2017, China’s PBoC bank officially banned ICOs, citing them as a form of unapproved illegal public financing behavior which raises suspicions, financial fraud, and other criminal activities.

Investment and Rate of Return (ROI)

Although ICOs are full of risk they have also provided one of the best returns of investment by any asset in recent times. Many of the early investors and supporters who bought ICO tokens during public sale events have made jaw-dropping gains. Here are the Top 10 ICOs of all time with maximum ROI since their launch.

  1. Nxt +1867061%
  2. Iota +551029%
  3. Neo +426645%
  4. Spectrecoin +375341%
  5. Ethereum +337797%
  6. Stratis +187192%
  7. Ark +66009%
  8. Lisk +27767%
  9. Populous +19414%
  10. Storj +14497%

Other Noteworthy ICOs in the Past

  • Ripple
  • Raiden Network
  • Stellar
  • Qtum
  • OmiseGo
  • Waves
  • Golum

1 Comment

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